DEPUTY COMMISSIONER OF INCOME TAX, VISAKHAPATNAM vs. M/S. VISAKHAPATNAM PORT AUTHORITY, VISAKHAPATNAM

The captioned appeals (07 appeals) are filed by the assessee (04 appeals) and the Revenue (03 appeals) against the respective orders of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [Ld. CIT(A), Delhi in the following DIN & Order Nos. Sl DIN & Order No. Date AY Arising out of No. the order passed 1. ITBA/NFAC/S/250/2023-24/1052849528(1) 15/5/2023 2009-10 U/s. 143(3) 2. ITBA/NFAC/S/250/2023-24/1052850617(1) 15/5/2023 2013-14 U/s. 143(3) 3. ITBA/NFAC/S/250/2023-24/1052850996(1) 15/5/2023 2014-15 U/s. 143(3) 4. ITBA/NFAC/S/250/2023-24/1050113569(1) 24/2/2023 2018-19 U/s. 143(3)

The Revenue has filed cross appeals for the AYs 2013-14; 2014- 15 and 2018-19. Since the issues involved in the assessee’s appeals as well as the Revenue’s appeals are identical in their respective appeals, for the sake of convenience, these appeals are 4 clubbed, heard together and disposed of in this consolidated order. Appeals wise adjudication is given in the following paragraphs. AY: 2009-10 (Assessee’s Appeal)

3. Briefly stated the facts of the case are that the assessee is a Port Trust which came into existence under the Major Port Trusts Act, 1963 and engaged in providing various facilities in Visakhapatnam Port as required under the said Act. The assessee has filed its original return of income for the AY 2009-10 declaring total income of Rs. 1,82,82,63,380/- on 30/09/2009. Thereafter, a revised return of income was filed by the assessee admitting a total income of Rs. 1,76,21,10,290/- on 22/03/2010. The case was selected for scrutiny under CASS. Accordingly, notice U/s. 142(2) was issued on 31/8/2010 and served on the 5 assessee on 8/9/2010 by ACIT, Circle-1(1), Visakhapatnam. Thereafter, the case was assigned to Addl. CIT, Range-1, Visakhapatnam vide the order of the Ld. CIT-1, Visakhapatnam dated 5/7/2011. Consequently, notice U/s. 143(2) and 142(1) of the Act were issued on 18/7/2011 along with a questionnaire calling for certain information and duly served on the assessee on 21/7/2011. In response to the above notices, the Authorized Representative of the assessee along with the officials of the assessee appeared before the Ld. AO and submitted the information from time to time as called for. After considering the submissions of the assessee and after examining the books of accounts and other relevant information obtained during the course of scrutiny proceedings, the Ld. AO completed the assessment U/s. 143(3) of the Act by making the following additions / disallowances: Sl Nature of addition / disallowance Amount (Rs.) No 1. Income on lease rental (rent received in advance) 26,12,93,436 2. Excess claim of depreciation on capital dredging 2,60,32,364 3. Excess claim of depreciation on railway permanent way 87,00,719 4. Disallowance of prior period expenditure 66,59,443 5. Excess claim on account of ‘contribution to pension fund’ 41,03,032 Accordingly, the Ld. AO determined the total at Rs. 206,88,99,274/- and passed the assessment order on 6 30/12/2011. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A)-NFAC partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in appeal before the Tribunal by raising the following Revised grounds of appeal: “

1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts and also the law applicable to the facts.

2. The order of the Ld. CIT(A) is not justified in treating advance upfront premium of Rs. 26,12,93,436/- on receipt basis as current year income.

3. The order of the Ld. CIT(A) is not justified in restricting the rate of depreciation to 10% as against 15% claimed by the appellant in respect of capital dredging & railway permanent way of Rs. 3,47,33,083/-.

4. The Ld. CIT(A) erred in quantifying the relief in respect of prior period expenses as Rs. 31,62,336/- as against the correct amount of Rs. 34,97,097/-.

5. Any other ground that may be urged at the time of appeal hearing.”

7 dated 27/09/2023 wherein it was demonstrated that the issue wise adjudication was done by the Tribunal and therefore considering the similarity of the issues, the grounds raised by the assessee in the present appeal may be allowed.

8 7. Ground No.1 is general in nature and therefore it needs no adjudication.

“31. With respect to Ground No.5 wherein the Ld. Revenue Authorities confirmed the addition of Rs. 13,77,54,997/- towards upfront premium received on lease of lands, the Ld. AR submitted that the assessee is following the mercantile system of accounting and in accordance with the Accounting Standard on leases (AS-19) issued by the ICAI upfront premium received on leasing of lands which is amortized over the period of lease. The Ld. AR further referred to the land policy guidelines issued the Government of India, Ministry of Shipping for the allotment of land by the various Ports to various lessees and stated that the upfront premium is collected from lessees does not pertain to one Financial Year and hence credited to the current liabilities and the proportionate land rental revenue of the financial year is recognized as revenue in the P & L Account for the particular year. The Ld. AR also referred to the agreement entered into with M/s. Indian Potash Limited by the assessee. It is further submitted that the lease is not automatically renewable and risk & rewards incidental to the ownership were not transferred to the lessee. It was submitted by the Ld. AR that in the mercantile system of accounting being regularly followed by the assessee recognizing the rent 9 which was received on upfront for a period of 30 years over the lease period is in accordance with the accounting policy and also complying with the provisions of section 145 of the Act. On this issue, the Ld. AR relied on the following case laws: (i) CIT vs. McMillan & Co. [1958] 33 ITR 182 (SC). (ii) Investment Ltd vs. CIT [1970] 77 ITR 533 (SC) (iii) MKB Asia (P.) Ltd vs. CIT [2008] 167 Taxman 256 (Gau.) (iv) JuggilalKamlaat Bankers vs. CIT [1975] 101 ITR 40 (All.) (v) CIT vs. Smt. Vimala D. Sonwand [1994] 75 Taxman 335 (Bom.) 32. The Ld. AR further submitted that the assessee can cancel the agreement and reassume the possession of the land by giving six months prior notice, and in case of such cancelation necessary compensation has to be paid to the lessee. The Ld. AR further submitted that in the case law relied on by the Ld. AO in the case of P.L. Ganapathi Rao & ANR vs. CIT [2006] 285 ITR 501 (AP), cash basis accounting system was followed. Further, the Ld. AR also in his written submissions stated that the Ld. Assessing Officers in the earlier assessment years have accepted the amortization of income and without prejudice an amount of Rs. 9,14,57,284/- which was received in earlier years as upfront premium and accrued as income proportionately during the current AY, cannot be subjected to tax in the impugned assessment year. Per contra, the Ld. DR in his written submissions relied on the decision of the ITAT, Bangalore Bench in the case of New Mangalore Port Trust vs. ACIT, Circle-1(1), Mangalore reported in [2016] 65 taxmann.com 210 (Bangalore-Trib). The Ld. DR refered to para 9.4 of the said order wherein it was stated that under similar circumstances, the consideration received by the assessee in that case as upfront premium for 30 years was considered as revenue receipt. Countering the arguments of the Ld. DR, the Ld. AR referred to para 9.4 and submitted that in the said para 9.4 it was clearly mentioned that “this upfront premium amount is admittedly non-refundable amount irrespective of premature termination of the concession / lease agreement”. Therefore, he pleaded that this cannot be applied to the instant case as in this case it is not a non-refundable upfront premium.

The alternative plea made by the Ld. AR in his written submissions wherein an amount of Rs. 9,14,57,284/- which was credited to the P & L Account in respect of proportionate upfront premium received on lease of land in earlier years, then the Revenue authorities should have adopted similar treatment upfront lease premium declared as income during the impugned assessment year. In these circumstances of the instant case, respectfully following the ratio laid down in the judicial precedents discussed as above, we are of the considered view that since the assessee is consistently following a method of recognizing the revenue over the period of lease, the treatment of upfront premium received by the assessee during the impugned assessment year by considering it as a revenue income deserves to be deleted and we direct the Ld. AO to delete the addition made on account of upfront premium received during the assessment year. We are therefore inclined to allow this ground raised by the assessee.”

11 9. Accordingly, we hereby allow the Ground No.2 raised by the assessee following the decision of the Tribunal (supra) in the assessee’s own case for the AY 2010 as well as by following principle of consistency.

“28. Ground No.4 pertains to disallowance of excess depreciation of Rs. 5,20,74,400/- as claimed by the assessee in respect of capital dredging. The Ld. AR argued that the assessee has incurred a certain capital expenditure on capital dredging of the Port to facilitate free movements of Ships and hence to be considered as Plant & Machinery and accordingly the assessee is entitled for depreciation @ 15%. The Ld. AR relied on the order of the Coordinate Bench of Hyderabad decision in the case of DCIT, Circle-2(1), Hyderabad vs. Kakinada Sea Ports Limited in to 39/Hyd/2015 (AYs: 2007-08 to 2010-11), dated 4/09/2015 and submitted that the Coordinate Bench by relying on various case laws considered the assessee’s claim of depreciation @ 15% on capital dredging and hence pleaded that the same decision may be applied to the instant case. Per contra, the Ld. DR submitted that the capital dredging is akin to roads being developed on land for free facilitation of the vehicles and hence it should be treated as buildings and the assessee is entitled for depreciation @ 10% only. The Ld. DR relied on the decision of the Hon’ble High Court of Bombay in the case of CIT vs. Mazagaon Dock Ltd reported in [1994] 206 ITR 260 (Bom.).

12 29. We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, the assessee has incurred expenditure of capital dredging on which the assessee claimed depreciation @ 15% considering the capital dredging as “Plant & Machinery”. The Ld. AO disallowed the excess depreciation claimed by the assessee and observed that the assessee is entitled for depreciation @ 10% on capital dredging as it has to be considered as “buildings”. We also find that the Ld. CIT(A) by relied on the decision of the Hon’ble High Court of Bombay in the case of CIT vs. Mazagaon Dock Ltd (supra) wherein it was held as under: “11. On a careful consideration of the rival submissions of the counsels for the parties, we find ourselves in agreement with the counsel for the revenue that the approach channel made by dredging the sea is more akin to ‘road’ than ‘plant’. We are not impressed by the submission of the learned counsel for the assessee that judging from functional test the approach channel constructed by dredging the sea can be treated as a ‘plant’. In our opinion, the functional test has to be applied rationally Too liberal application of this test may bring in everything including the roads within the factory which have already been held by the Supreme Court to be ‘building’ within the expression ‘plant’. On such liberal interpretation, even the ‘factory building’ itself may have to be held to be a ‘plant’ because without it the ‘plant’ cannot be operated in the open. But that is not so. Structures which fall within the expression ‘building’ or pathways like roads, etc., required for providing approach to the factory have been held to be buildings or roads and not ‘plant’. This controversy, as rightly pointed out by counsel for the revenue, has now been set at rest by the Supreme Court in Gwalior Rayon Silk Mfg. Co. Ltd.’s case (supra). In that case, the Supreme Court considered the decisions of various Courts some of which had treated roads as ‘plant’ and it was held that: “We have no hesitation to hold that the roads laid within the factory premises as links or providing approach to the buildings are necessary adjuncts to the factory buildings to carry on the business activity of the assessee and would be building within the meaning of section 32 of the Act. The capital expenditure incurred thereon is admissible to depreciation as per the provisions of the Act read with Rules in the Appendix.”

12. With respect to depreciation on Railway Permanent Way, the second limb of the Ground No.3 raised by the assessee, on perusal of the Tribunal’s order in the assessee’s own case (supra), we have observed

14 that this Bench of the Tribunal has dealt with this issue while adjudicating the Revenue’s Appeal in (AY: 2016- 17)and dismissed the ground raised by the Revenue vide paras 117 and 118 of the Tribunal order (supra). For the sake of reference, the relevant paras are extracted herein below:

“117. With respect to Ground No.2, the Revenue has contended that the Ld. CIT(A) has erred in treating the Railway Permanent Way as Plant & Machinery instead of treating it as roads on part with buildings and accordingly allowed depreciation @ 15% instead of depreciation @ 10% on buildings. On this ground, the Ld. DR submitted that the Railway Permanent Way is akin to road and should be treated as “buildings” for the purpose of calculation of depreciation. The Ld. DR also submitted that the Ld. AO has also distinguished the decision of the Hon’ble Apex Court in the case of CIT vs. Karnataka Power Corporation reported in 247 ITR 268 (SC) relied on by the assessee in support of its claim. Therefore, the Ld. DR pleaded that the order of the Ld. AO be upheld. Per contra, the Ld. AR relied on the order of the Ld. CIT(A) and argued in support of the same.

15 CIT(A) on this issue. Thus, this ground raised by the Revenue is dismissed.”

16 before the Ld. CIT(A)-NFAC. Accordingly, this ground raised by the assessee is disposed of as mentioned herein above.

Cross Appeals for the AY 2013-14 (AY: 2013-14) (Assessee’s Appeal)

Briefly stated the facts of the case are that the assessee is a 18. Port Trust which came into existence under the Major Port Trusts Act, 1963 and engaged in providing various facilities in Visakhapatnam Port as required under the said Act. The assessee has filed its original return of income for the AY 2013-14 on 30/09/2013 declaring total loss of Rs.(-)53,65,27,251/-. The case was selected for scrutiny and accordingly, the Ld. AO issued statutory notices and called for certain information with regard to 17 the claims made by the assessee. In reply, the assessee’s Authorized Representative appeared before the Ld. AO and filed replies to the notices as well as made submissions in support of the assessee’s claim. On perusal of the submissions made by the assessee’s Representative and on perusal of the material available on record, the Ld. AO completed the assessment U/s. 143(3) of the Act by making the following additions / disallowances:

Sl Nature of addition / disallowance Amount (Rs.) No 1. Upfront premium / unexplained discounts added as income 97,47,97,988 2. Disallowance of excess claim of depreciation 8,06,20,156 3. Disallowance of prior period expenses 1,18,47,571 4. Disallowance of donation and contribution 87,67,274 5. Disallowance of excess claim on account of contribution to 2,49,03,33,905 pension fund Accordingly, the Ld. AO determined the total income of the assessee at Rs. 3,02,98,39,640/- and passed the assessment order U/s. 143(3) of the Act on 31/3/2016. Aggrieved by the order of the Ld.AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A)- NFAC partly allowed the assessee’s appeal. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in appeal before the Tribunal by raising the following grounds of appeal:

“1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts.

18 2. The Ld.CIT(A) is not justified in treating advance upfront premium of Rs. 97,47,97,988/- on receipt basis as current year income.

3. The Ld. CIT (A) is not justified in restricting the rate of depreciation to 10% as against 15% claimed by the assessee in respect of capital dredging and railway permanent way of Rs. 8,06,20,156/-.

4. The Assessing Officer is not justified in disallowing the donations made of Rs. 5,74,883/- U/s. 37(1) of the Act.

5. Any other ground that may be urged at the time of appeal hearing.”

19 raised by the assessee in its appeal for the AY 2009-10 in ITA No. 191/Viz/2023. Considering the identical nature of the issue as well as taking into account the fact that there is no change in the facts and circumstances of the case, our decision given while adjudicating the Ground No.3 of assessee’s appeal in mutatis mutandis applies to the Ground No.3 of the present appeal also. Accordingly, we hereby dismiss the issue with respect to capital dredging raised in Ground No.3 by the assessee and allow the issue with respect to depreciation on Railway Permanent Way raised in Ground No.3.

“66. Ground No.4 is with respect to with respect to sustenance of addition of Rs. 1,49,325/- being the expenditure incurred towards donations and contributions. Before us, the Ld. AR submitted that the assessee has incurred contribution to the Major Ports Sports Council Board (MPSCB) and also expenditure on compassionate grounds, disaster management plant, cultural activities, Teacher’s Day celebrations etc. The Ld. AR submitted that Rs. 1,55,49,973/- was incurred towards contribution to the MPSCB stands for other expenditure. The Ld. AR 20 therefore pleaded that the other expenditure is also in connection with the business activities of the assessee and therefore it should be allowed. Per contra, the Ld. DR relied on the of the Ld. Revenue Authorities on this issue and supported their decision.

21 NFAC, we find no infirmity in the order of the Ld. CIT(A)-NFAC while disallowing Rs. 5,74,883/- U/s. 37(1) as not relatable to the business activities of the assessee and therefore the decision of the Ld. CIT(A)- NFAC does not call for any interference. Accordingly, we hereby dismiss the Ground No.4 raised by the assessee following the decision of the Tribunal in the assessee’s own caseas well as following the principle of consistency.

Briefly stated the facts of the case are that the assessee is a 27. Port Trust which came into existence under the Major Port Trusts Act, 1963 and engaged in providing various facilities in Visakhapatnam Port as required under the said Act. The assessee

22 has filed its original return of income for the AY 2013-14 on 30/09/2013 declaring total loss of Rs.(-)53,65,27,251/-. The case was selected for scrutiny and accordingly, the Ld. AO issued statutory notices and called for certain information with regard to the claims made by the assessee. In reply, the assessee’s Authorized Representative appeared before the Ld. AO and filed replies to the notices as well as made submissions in support of the assessee’s claim. On perusal of the submissions made by the assessee’s Representative and on perusal of the material available on record, the Ld. AO completed the assessment U/s. 143(3) of the Act by making the following additions / disallowances:

Sl Nature of addition / disallowance Amount (Rs.) No 1. Upfront premium / unexplained discounts added as income 97,47,97,988 2. Disallowance of excess claim of depreciation 8,06,20,156 3. Disallowance of prior period expenses 1,18,47,571 4. Disallowance of donation and contribution 87,67,274 5. Disallowance of excess claim on account of contribution to 2,49,03,33,905 pension fund Accordingly, the Ld. AO determined the total income of the assessee at Rs. 3,02,98,39,640/- and passed the assessment order U/s. 143(3) of the Act on 31/3/2016. Aggrieved by the order of the Ld.AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A)- NFAC partly allowed the assessee’s appeal. Aggrieved by the order of the 23 Ld. CIT(A)-NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds of appeal:

“1. The order of the Ld. CIT(A)-NFAC is erroneous in law and to the facts of the case.

2. The Ld. CIT(A)-NFAC is not justified in allowing the prior period expenses of Rs. 1,18,47,571/- as these expenses did not pertain to the subject year and is as such not allowable for AY 2013-14.

3. The Ld. CIT(A)-NFAC is not justified in allowing the claim of donations and contributions to Indian Port Association for Rs. 81,92,391/- as none of these contributions are related to the business activities of the assessee and moreover, the assessee port has failed to justify how these expenditures are related to the business activities of the port.

4. The Ld. CIT(A)-NFAC is not justified in allowing the claim of the excess contribution to pension fund for earlier years for Rs. 249,03,33,905/- paid during the year being part of provision of excess contribution to pension fund exceeding the prescribed limit made in earlier years. Any expenditure that falls within the purview of section 43B of the Act can be claimed as an expense in the year of payment provided that it is otherwise allowable under the Act. Therefore, once excess contribution is not allowable U/s. 36(1)(iv) of the Act, such excess contribution cannot be allowed U/s. 43B of the Act also on payment basis.

5. The Ld. CIT(A)-NFAC is not justified in allowing the claim of excess contribution to pension fund for current year for Rs. 173,14,00,000/- exceeding the prescribed limit.

6. The Ld. CIT(A)-NFAC is not justified in allowing the claim of the excess contribution to Gratuity fund for earlier years for Rs. 5,23,00,057/- paid during the year being part of provision of excess contribution to Gratuity fund exceeding the prescribed limit made in earlier years. Any expenditure that falls within the purview of section 43B of the Act can be claimed as an expense in the year of payment provided that it is otherwise allowable under the Act. Therefore, once excess contribution is not allowable U/s. 36(1)(v) of the Act, such excess contribution cannot be allowed U/s. 43B of the act also on payment basis.

7. The appellant craves leave to add or delete or amend or substitute any ground of appeal

before and/or at the time of hearing of appeal.”

28. Ground No.1 is general in nature and therefore it needs no adjudication.

24 29. Ground No.2 relates to the Ld. CIT(A)-NFAC’s decision in allowing the prior period expenditure of Rs.1,18,47,571/-. On perusal of the Tribunal’s order in the assessee’s own case for the AY 2010-11 in (assessee’s appeal), dated 27/09/2023, this issue was dealt with by the Tribunal and adjudicated in favour of the assessee. For the sake of reference, the relevant paras from the order of the Tribunal are extracted herein below:

“22. With respect to Ground No.2 regarding the disallowance of prior period expenses of Rs. 59,10,546/-, the Ld. AR submitted that these expenses even though relates to previous years have been crystallized only during the impugned assessment years. The Ld. AR referred to Accounting Standard-5 (AS-5) issued by the Institute of Chartered Accountants of India [ICAI] and stated that “prior period items are defined as income or expenses which arise in the current period as a result of errors or omission in the preparation of the financial statements of one or more periods”. The Ld. AR further submitted that as per the definition of prior period item ‘only errors or omissions in the earlier periods which are accounted in the current assessment year shall be considered as prior period items’. The Ld. AR further submitted that in the instant case, the liability for the wages, operating expenses and other expenses only crystallized during the impugned assessment year and hence it does not fall within the definition of prior period expenses. The Ld. AR also further referred to paper book page No.175 wherein a Memorandum of Settlement of Wages has been arrived between the Major Ports and All India Port & Dock Workers Federation (HMS). The Ld. AR also referred to Wage Settlement Memorandum and stated that the arrears due to the employees / workers have been agreed w.e.f 1/1/2007 onwards. The Ld. AR further submitted that this Wage Settlement was signed on 19/1/2010 and hence the arrears payable w.e.f 1/1/2007 has been provided in the books of account during the AY 2010-11. The Ld. AR relied on the various case laws as submitted in the paper book. Per contra, the Ld. DR fully supported the order of the Ld. Revenue Authorities.

25 23. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. We find from the submissions made by the Ld. AR that the Memorandum of Wage Settlement was signed on 19/1/2010 giving retrospective effect from 1/1/2007. The Memorandum of Settlement which was arrived at U/s. 12(3) of the Industrial Disputes Act, 1947 between the Five Major Federations operating in Major Port Trusts and Dock Labour Boards and the Management. Further, we also find that AS-5 issued by the ICAI clearly defines prior period items as follows: “Prior period items are defined as income or expenses which arise in the current period as a result of errors or omission in the preparation of the financial statements of one or more periods”.

24. However, in the instant case, the assessee is following the mercantile system of accounting. These items of prior period expenses raised in the grounds are crystallizedduring the impugned assessment year 2010-11 and accordingly, the assessee has claimed it as an expenditure during the impugned assessment year. We also find that these prior period items are not a result of errors or omissions in the financial statements of one or more prior periods. These items / adjustments are necessitated by the circumstances which are determined in the current accounting period. Even though it relates to the prior periods, it needs to be allowed as an expenditure in the impugned assessment year as it has been crystallized only during the AY 2010-11. The only contention of the Ld. AO is that these expenditures related to prior period where the assessee has claimed exemption of income and hence disallowance U/s. 14A of the Act is applicable to the instant case. Based on the discussion above, we find that even though the items of expenditure pertain to the earlier period where exemption U/s. 11 was claimed by the assessee these items of expenditure was crystallized only during the current assessment year and hence cannot be accrued in the previous assessment years. We therefore have no hesitation to delete the addition made by the Ld. Revenue Authorities on this ground and thereby allow the ground raised by the assessee.”

Accordingly, we hereby dismiss the Ground No.2 raised 30. by the Revenue following the decision of this Tribunal (supra) in the assessee’s own case for the AY 2010-11 as well as following the principle of consistency.

26 31. Ground No.3 relates to the Ld. CIT(A)-NFAC’s decision in allowing the assessee’s claim of donations and contributions to Indian Port Association amounting to Rs. 81,92,391/-. While dealing with the assessee’s appeal for the AY 2013-14 in (supra), vide Ground No.4, we have dealt with this issue and observed that the Ld. CIT(A)-NFAC has rightly adjudicated the issue after verification of the submissions made by the assessee and held that out of Rs. 87,67,274/-, the major expenditure of Rs. 81,92,391/- is towards contribution to Indian Ports Association and therefore the same is allowable U/s. 37(1) of the Act and accordingly we held that there is no infirmity in the order of the Ld. CIT(A)-NFAC and the same does not call for any interference.Thus, this ground raised by the Revenue is dismissed.

“ 48. Ground No.5 is with respect to the contribution to pension fund in excess of the annual limit of 27% of the salaries and wages. Before us, it was submitted by the Ld. AR that the provisions to the Pension Fund is based on actuarial valuation based on scientific principles. This provision has been made in the books of account during the impugned assessment year to cover all the employees including retired employees. The Ld. AR relied on the decision of the Coordinate Bench decision in dated 28/01/2011 in the case of Glaxo Smithkline Pharmaceuticals. Further, Ld. AR submitted that the view taken by the ITAT, Mumbai Bench in the case of Glaxo Smithkline Pharmaceuticals (supra) was also affirmed by the Hon’ble High Court of Bombay in CIT-6 vs. Glaxo Smithkline Pharmaceuticals. He therefore pleaded that the addition made and confirmed by the Ld. Revenue Authorities may please be deleted. Per contra, the Ld. DR relied on the orders of the Ld. Revenue Authorities and argued in support of the same.

28 4. In view of the above, we see no reason to entertain the question of law as proposed as the assessee in any view of the matter is entitled to the deduction U/s. 37 of the Act. Therefore, the question as raised is academic.”

50. From the judicial pronouncements as relied on by the Ld. AR as extracted above, we find that the Hon’ble High Court of Bombay has held that even if the expenditure is not allowable U/s. 36(1)(iv) of the Act, but the same is allowable U/s. 37 of the Act. Respectfully following the above decision, we are inclined to allow the contribution to Pension Fund in excess of 27% on account of salaries, wages and pension U/s. 37 of the Act and hence this ground raised by the assessee is allowed. Since, the expenditure is allowed on contribution basis, we are of the opinion that the provisions of section 43B of the Act are not applicable. It is ordered accordingly.” Accordingly, we hereby dismiss the Grounds No.4 & 5 33. raised by the Revenue with respect to contribution to pension fund by following the order of the Tribunal (supra) as well as following the principles of consistency.

29 “74. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. It is admitted fact that the assessee has made contribution towards Gratuity fund during the year in addition to the contribution made @ 8.33% of the salaries as per the provisions of IT Rules, 1962. The contention of the Ld. AO is that the amount of Rs. 30.17 Crs being initial contribution as claimed by the assessee is not allowable as an expenditure in accordance with the Rule 104 of the IT Rules, 1962 which was clarified by Circular No.14, dated 23/4/1969. However, the contention of the Ld. AR is that this is an additional contribution to match with the actuarial valuation and an amount of Rs. 30.17 Crs was made during the current year subject to availability of surplus funds with the assessee. This payment has been necessitated due to shortfall to meet the actuarial valuation of the Fund to ensure that there is sufficient balance in Gratuity Fund to discharge its obligation at a future date. It is neither an annual contribution nor an ordinary contribution. Even though the contribution is in excess of the specified limit, in our opinion these are incurred for the purpose of business of the assessee and hence are deductible U/s. 37(1) of the Act. We therefore do not concur with the opinion of the Ld. CIT(A) and we are inclined to set-aside the order of the Ld. CIT(A) and allow the grounds raised by the assessee.”

30 Cross appeals for the AY 2014-15

AY 194/Viz/2023 (AY: 2014-15) (Assessee’s Appeal)

31 as made submissions in support of the assessee’s claim. On perusal of the submissions made by the assessee’s Representative and on perusal of the material available on record, the Ld. AO completed the assessment U/s. 143(3) of the Act by making the following additions / disallowances:

Sl Nature of addition / disallowance Amount (Rs.) No 1. Upfront premium / unexplained discounts added as income 15,26,11,019 2. Disallowance of excess claim of depreciation 6,35,64,651 3. Disallowance of prior period expenses 17,39,609 4. Disallowance of donation and contribution 84,97,821 5. Disallowance of excess claim on account of contribution to 139,66,89,155 pension fund 6. Disallowance of excess claim on account of contribution to 1,62,04,753 Gratuity Fund 7. Disallowance of amount paid to M/s. RITES 5,56,18,200 Accordingly, the Ld. AO determined the total income of the assessee at Rs. 134,09,21,870/- and passed the assessment order U/s. 143(3) of the Act on 31/12/2016. Aggrieved by the order of the Ld.AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A)- NFAC partly allowed the assessee’s appeal. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assesseeis in appeal before the Tribunal by raising the following grounds of appeal:

“1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts. 2. The Ld. CIT(A) is not justified in treating advance upfront premium of Rs. 15,26,11,019/- on receipt basis as current year income.

32 3. The Ld. CIT(A) is not justified in restricting the rate of depreciation to 10% as against 15% claimed by the assessee in respect of capital dredging and railway permanent way of Rs. 6,35,65,651/-.

4. The Assessing Officer is not justified in disallowing the donations made to disaster management plan, cultural activity etc., of Rs. 4,59,803/- U/s. 37(1) of the Act.

5. The Assessing Officer is not justified in disallowing the amount paid to M/s. RITES for the purpose of feasibility report of Rs. 5,56,18,200/- U/s. 37 of the Act. Any other ground that may be urged at the time of appeal hearing.” 6.

33 42. Ground No.3 relates to the Ld. CIT(A)-NFAC’s decision in restricting the rate of depreciation to 10% as against 15% claimed by the assessee in respect of Capital Dredging&Railway Permanent Way of Rs. 6,35,65,651/-.This ground is identical to that of the Ground No.3 raised by the assessee in its appeal for the AY 2009-10 in which is adjudicated in the foregoing paragraphs of this order. Considering the similarity of the issues involved in present Ground No.3 as well as Ground No.3 of ITA No.191/Viz/2023 (supra), our decision given therein mutatis mutandis applies to Ground No.3 of the present appeal also. Accordingly, we hereby dismiss the issue with respect to capital dredging and allow the issue with respect to depreciation on Railway Permanent Wayraised in Ground No.3.

34 “67. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue on this issue. In the instant case, it was accepted by the assessee that certain expenditure amounting to Rs. 1,49,325/- was incurred towards disaster management plan, cultural activities, Teacher’s Day Celebrations etc. The Ld. CIT(A) also adjudicated this issue after verification of the submissions made by the assessee and has held that out of Rs. 1,56,99,298/-, Rs. 1,49,325 [Rs. 1,56,99,298 – Rs. 1,55,49,973] pertains to the expenditure which are not related to the business activities of the assessee and thereby disallowed a sum of Rs. 1,49,325/-. From the submissions made before us by the Ld. AR we are of the opinion that cultural activities, Teacher’s Day Celebrations etc. are not in the nature of expenditure for business purposes and therefore concur with the findings of the Ld. CIT(A) on this issue and we find no infirmity in the order of the Ld. CIT(A). Thus, this ground raised by the assessee is dismissed.”

35 48. Briefly stated the facts of the case are that the assessee is a Port Trust which came into existence under the Major Port Trusts Act, 1963 and engaged in providing various facilities in Visakhapatnam Port as required under the said Act. The assessee has filed its original return of income for the AY 2014-15 on 25/09/2014 declaring a loss of Rs. 38,62,09,102/-. Subsequently, the assessee filed revised return of income for the AY 2014-15 on 28/03/2016 admitting total loss of Rs.(-) 35,40,03,341/-.The case was selected for scrutiny and accordingly, the Ld. AO issued statutory notices and called for certain information with regard to the claims made by the assessee. In reply, the assessee’s Authorized Representative appeared before the Ld. AO and filed replies to the notices as well as made submissions in support of the assessee’s claim. On perusal of the submissions made by the assessee’s Representative and on perusal of the material available on record, the Ld. AO completed the assessment U/s. 143(3) of the Act by making the following additions / disallowances:

Sl Nature of addition / disallowance Amount (Rs.) No 1. Upfront premium / unexplained discounts added as income 15,26,11,019 2. Disallowance of excess claim of depreciation 6,35,64,651 3. Disallowance of prior period expenses 17,39,609 4. Disallowance of donation and contribution 84,97,821 5. Disallowance of excess claim on account of contribution to 139,66,89,155

36 pension fund 6. Disallowance of excess claim on account of contribution to 1,62,04,753 Gratuity Fund 7. Disallowance of amount paid to M/s. RITES 5,56,18,200 Accordingly, the Ld. AO determined the total income of the assessee at Rs. 134,09,21,870/- and passed the assessment order U/s. 143(3) of the Act on 31/12/2016. Aggrieved by the order of the Ld.AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A)- NFAC partly allowed the assessee’s appeal. Aggrieved by the order of the Ld. CIT(A)-NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds of appeal:

“1. The order of the Ld. CIT(A)-NFAC is erroneous in law and to the facts of the case.

2. The Ld. CIT(A)-NFAC is not justified in allowing the prior period expenses of Rs. 17,39,609/- as these expenses did not pertain to the subject year and is as such not allowable for AY 2014-15.

4. The Ld. CIT(A)-NFAC is not justified in allowing the claim of the excess contribution to pension fund for earlier years for Rs. 117,38,77,969/- paid during the year being part of provision of excess contribution to pension fund exceeding the prescribed limit made in earlier years. Any expenditure that falls within the purview of section 43B of the Act can be claimed as an expense in the year of payment provided that it is otherwise allowable under the Act. Therefore, once excess contribution is not allowable U/s. 36(1)(iv) of the Act, such excess contribution cannot be allowed U/s. 43B of the Act also on payment basis.

5. The Ld. CIT(A)-NFAC is not justified in allowing the claim of excess contribution to pension fund for current year for Rs. 22,28,11,186/- exceeding the prescribed limit.

37 6. The Ld. CIT(A)-NFAC is not justified in allowing the claim of the excess contribution to Gratuity fund for earlier years for Rs. 1,62,04,753/- paid during the year being part of provision of excess contribution to Gratuity fund exceeding the prescribed limit made in earlier years. Any expenditure that falls within the purview of section 43B of the Act can be claimed as an expense in the year of payment provided that it is otherwise allowable under the Act. Therefore, once excess contribution is not allowable U/s. 36(1)(v) of the Act, such excess contribution cannot be allowed U/s. 43B of the act also on payment basis.

before and/or at the time of hearing of appeal.

8. For these and other grounds that may be urged at the time of appeal hearing, it is prayed that all these above additions be restored.”

49. On perusal of the above grounds of appeal raised by the Revenue, we find that these grounds are identical to that of the grounds raised by the Revenue in its appeal for the AY 2013-14 which is adjudicated in the above paragraphs of this order in ITA No. 200/Viz/2023. Since there is no change in the facts and circumstances of the case for the AY 2013-14 and 2014-15 as well as considering the similarity of the issues involved in both the AYs, our decision given while adjudicating the Revenue’s appeal for the AY 2013-14 in mutatis mutandis applies to the Revenue’s appeal for the AY 2014-15 also. Accordingly, the grounds raised by the Revenue are dismissed.

38 Cross Appeals for the AY 2018-19 (AY 2018-19) (Assessee’s Appeal) 51. This appeal filed by the assessee is against the order of the Ld. CIT(A)-NFAC, Delhi in DIN & Order No. ITBA/NFAC/S/250/2022-23/1050113569(1), dated 24/02/2023 arising out of the order passed U/s. 143(3) of the Act for the AY 2018-19.

39 11/09/2012. The assessee filed its return of income for the AY 2018-19 on 25/10/2018 declaring total income of Rs. 78,85,21,700/-. Thereafter, the assessee filed a revised return of income on 26/03/2019 declaring total income at Rs. 78,85,21,700/- and revised the claim of TDS credit from Rs. 55,61,33,403/- as reported in original return to Rs. 56,45,96,540/-. The case was selected for scrutiny under CASS. Subsequently notices U/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. In response to the above notices, the Authorized Representative of the assessee along with the officials of the assessee appeared before the Ld. AO and submitted the information from time to time as called for. After considering the submissions of the assessee and after examining the books of accounts and other relevant information obtained during the course of scrutiny proceedings, the Ld. AO completed the assessment U/s. 143(3) of the Act by making the following additions / disallowances: Sl Nature of addition / disallowance Amount (Rs.) No 1. Upfront premium addition 117,43,61,509 2. Excess claim of depreciation on capital dredging 22,33,04,957 3. Excess depreciation on railway permanent way 2,69,49,709 4. Provision for interest on Government loans on outer Harbour 3,50,00,000 5. Prior period expenses 8,55,16,814 6. Disallowance of deduction of outstanding pension fund 14,32,60,737 7. Deduction of upfront premium 5,67,,36,862 8. Disallowance U/s. 14A of the Act 68,80,000 Accordingly, the Ld. AO determined the total at Rs. 319,66,73,346/- and passed the assessment order on 24/09/2021. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A)-NFAC partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in appeal before the Tribunal by raising the following Revised grounds of appeal: “

1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts and also the law applicable to the facts.

2. The order of the Ld. CIT(A) is not justified in treating advance upfront premium of Rs. 117,43,61,509/- on receipt basis as current year income.

3. The order of the Ld. CIT(A) is not justified in restricting the rate of depreciation to 10% as against 15% claimed by the appellant in respect of capital dredging & railway permanent way of Rs. 25,02,54,666/-.

4. The Ld. AO is not justified in disallowing interest payable on loans obtained from Government of India of Rs. 3,50,00,000/- U/s. 43B of the Act.

5. Any other ground that may be urged at the time of appeal hearing.”

54. Ground No.4 is with respect to the disallowance of interest payable on loans obtained from Government of India of Rs. 3,50,00,000/-. On perusal of the order of the Tribunal dated 27/09/2023 (supra), we find that an identical issue was raised by the assessee in its own case in for the AY 2016-17 wherein the Tribunal has discussed the issue at length and allowed the ground in favour of the assessee. For the sake of reference, the relevant paras from the order of the Tribunal dated 27/09/2023 (supra) are extracted herein below:

42 “84. Ground No.4 is with respect to disallowance of provision made towards interest payable on Government Loans for Rs. 7 Crs. Before us, on this issue the Ld. AR argued that interest is payable by the assessee on the loans obtained from Government of India and hence the provisions of section 43B of the Act are not applicable. The Ld. AR further submitted that as per the provisions of section 43B of the Act, interest payable on loans borrowed from any Financial Institutions and Banks only are covered. He therefore pleaded that the interest payable on the loans obtained from Government of India are not covered under the provisions and accordingly no disallowance can be made. The Ld. AR relied on the case of CIT-1, Lucknow vs. U.P. Rajya Vidyut Utpadan Nigam Ltd reported in [2013] 37 taxmann.com 164 (Allahabad). Per contra, the Ld. DR relied on the orders of the Ld. Revenue Authorities and pleaded that they may be upheld.

43 “Explanation 4.—For the purposes of this section,— 4. “public financial institutions” shall have the meaning assigned to it in section 4Aof the Companies Act, 1956 (1 of 1956); (aa) “scheduled bank” shall have the meaning assigned to it in the Explanation to clause (iii) of sub-section (5) of section 11; (b) “State financial corporation” means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); I“State industrial investment corporation” means a Government company within the meaning of section 617of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of sub- section (1) of section 36; (d) “co-operative bank”, “primary agricultural credit society” and “primary co- operative agricultural and rural development bank” shall have the meanings respectively assigned to them in the Explanation to sub- section (4) of section 80P; (e) “deposit taking non-banking financial company” means a non-banking financial company which is accepting or holding public deposits and is registered with the Reserve Bank of India under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934); Following clause (e) shall be substituted for the existing clause (e) of Explanation 4 to section 43B by the Finance Act, 2023, w.e.f. 1-4-2024: (e) “micro enterprise” shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006); (f) “non-banking financial company” shall have the meaning assigned to it in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); (g) “systemically important non-deposit taking non-banking financial company” means a non-banking financial company which is not accepting or holding public deposits and having total assets of not less than five hundred crore rupees as per the last audited balance sheet and is registered with the Reserve Bank of India under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934). Following clause (g) shall be substituted for the existing clause (g) of Explanation 4 to section 43B by the Finance Act, 2023, w.e.f. 1-4-2024: (g) “small enterprise” shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).”

From the bare reading of the above provisions and Explanation to 87. Section 43B, the terms “public financial institutions”; “scheduled bank”; “State industrial investment corporation”; “co-operative bank”, “primary agricultural credit society” and “primary co-operative agricultural and rural development bank”; “deposit taking non-banking financial company”; “micro enterprise” etc., have been defined. The intention of the Legislature is to disallow the interest if not paid within due date and remains payable 44 to the above entities. Nowhere in the Explanation-4 to section 43B of the Act, the term “Government of India” has been used.

(AY 2018-19) (Revenue’s Appeal) This appeal filed by the Revenue is against the order of the 58. Ld. CIT(A)-NFAC, Delhi in DIN & Order No. ITBA/NFAC/S/250/2022-23/1050113569(1), dated 24/02/2023 arising out of the order passed U/s. 143(3) of the Act for the AY 2018-19.

46 78,85,21,700/-. Thereafter, the assessee filed a revised return of income on 26/03/2019 declaring total income at Rs. 78,85,21,700/- and revised the claim of TDS credit from Rs. 55,61,33,403/- as reported in original return to Rs. 56,45,96,540/-. The case was selected for scrutiny under CASS. Subsequently notices U/s. 143(2) and 142(1) of the Act were issued and served upon the assessee.In response to the above notices, the Authorized Representative of the assessee along with the officials of the assessee appeared before the Ld. AO and submitted the information from time to time as called for. After considering the submissions of the assessee and after examining the books of accounts and other relevant information obtained during the course of scrutiny proceedings, the Ld. AO completed the assessment U/s. 143(3) of the Act by making the following additions / disallowances: Sl Nature of addition / disallowance Amount (Rs.) No 1. Upfront premium addition 117,43,61,509 2. Excess claim of depreciation on capital dredging 22,33,04,957 3. Excess depreciation on railway permanent way 2,69,49,709 4. Provision for interest on Government loans on outer Harbour 3,50,00,000 5. Prior period expenses 8,55,16,814 6. Disallowance of deduction of outstanding pension fund 14,32,60,737 7. Deduction of upfront premium 5,67,36,862 8. Disallowance U/s. 14A of the Act 68,80,000

47 Accordingly, the Ld. AO determined the total at Rs. 319,66,73,346/- and passed the assessment order on 24/09/2021. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A)-NFAC partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)-NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds of appeal:

“1. The order of the Ld. CIT(A), NFAC, Delhi is erroneous in law and to the facts of the case.

2. The Ld. CIT(A), NFAC is not justified in allowing the prior period expenditure of Rs. 8,55,16,814/- as these expenses did not pertain to the subject year and is as such not allowable for AY 2018-19.

3. The Ld. CIT(A), NFAC is not justified in allowing the claim of the excess contribution to Pension Fund for Rs. 14,32,60,737/- exceeding the prescribed limit.

4. The appellant craves leave to add or delete or amend or substitute any ground of appeal

before and / or at the time of hearing of the appeal.

5. For these and other grounds that may be urged at the time of appeal hearing, it is prayed that all the above additions be restored.”

60. From the above grounds of appeal, we find that the Revenue has raised identical grounds to that of the grounds raised in its appeal for the AY 2013-14 in ITA No.200/Viz/2023. Therefore, considering the identicalness of the issues raised by the Revenue in both the appeals for the AY 2013-14 and 2018-19, our decision given on the issues involved in the Revenue’s appeal for the AY 48 2013-14 (ITA No. 200/Viz/2023) mutatis mutandis applies to the issues involved in the present appeal of the Revenue for the AY 2018-19 also. Accordingly, Ground No.1 is general in nature and therefore needs no separate adjudication. Ground No.2 is with respect to the decision of the Ld. CIT(A)-NFAC in allowing the prior period expenses. Following our decision in the Revenue’s appeal for the AY 2013-14 (supra) we hereby dismiss the Ground No.2 raised by the Revenue. Ground No.3 is with respect to Ld. CIT(A)-NFAC’s decision in allowing the assessee’s claim of excess contribution to Pension Fund for earlier years Rs. 14,32,60,737/-.Following our decision in the Revenue’s appeal for the AY 2013-14 (supra) we hereby dismiss the Ground No.3 raised by the Revenue. Grounds No.4 & 5 are general in nature and therefore need not be adjudicated.

Pronounced in the open Court on 25th March, 2024.